Scottish Power, the Spanish-owned energy supplier, and larger rival Ovo Energy have begun holding exploratory talks about a merger that would create a company serving more than six million British households.
Sky News has learnt that executives from Iberdrola, which owns Scottish Power, and Ovo have been engaged in preliminary discussions in recent weeks about the possibility of a deal.
The talks are at an early stage and any formal transaction would be months away, if it materialised at all.
If the two companies do agree a merger of their residential gas and electricity operations, it would create the third-largest supplier behind Centrica-owned British Gas and Octopus Energy.
As the larger company, with 4 million customers, Ovo would probably be the acquiring entity, but with Iberdrola potentially contributing cash and remaining as a shareholder in the enlarged group, according to one banking source.
Scottish Power serves about 2.4 million households.
The discussions between the two companies are running in parallel to a separate process through which Ovo is exploring the potential to raise roughly £300m from the sale of new shares in the company, according to industry sources.
In recent weeks, a number of financial investors have been contacted by Rothschild, the investment bank advising Ovo, about the opportunity.
Exactly a year ago, Sky News revealed that Ovo had hired Rothschild to explore options, including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.
Founded by Stephen Fitzpatrick, the entrepreneur who now owns London’s Kensington Roof Gardens, Ovo’s shareholders include the private equity firm Mayfair Equity Partners, Morgan Stanley Investment Management and Mitsubishi Corporation, the Japanese conglomerate.
Under Mr Fitzpatrick, who launched Ovo in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established…
